Why Businesses Are Hiring Even During a Recession

One of the surest signs that we’re in a recession is the abundance of “We’re Hiring” signs at low-end service-sector places of employment. You’ve probably seen them around your town: fast food restaurants, video stores, retailers looking for new managers, etc.

How can this be? In a recession, shouldn’t businesses be laying people off?

On first glance, you might think that Burger King, for example, is hiring because people who formerly patronized restaurants like Bennigan’s and Steak & Ale – both of which have gone bankrupt in this tight economy – are now eating more fast food to save money. There’s some truth to this, but what about the people who were eating at BK and Mickey D’s all along? They’re foregoing the luxury of eating out altogether, so the net result for fast-food chains is a loss. That’s why on August 11, UBS cut McDonald’s stock rating from a “buy” to “neutral,” sending shares plummeting.

Similarly, perhaps the local video store is getting more business from some customers who are foregoing weekly trips to the cineplex. But they’re losing just as much (if not more) business as their traditional customers cut back on their discretionary spending.

This is all part of a “spending shift” in which people take a half-step down the socioeconomic ladder. The places where the middle class once shopped are now patronized by the affluent; where the poor once shopped are patronized by the middle class; and the poor, etc. The net effect is still a loss, though, as everyone cuts back and tightens their belts. Some businesses fail altogether, which leads to the more important shift: the employment shift.

When higher-end businesses lay people off or close down, waves of highly skilled and educated workers become free agents within the labor force. This gives companies like McDonald’s, Burger King, and Blockbuster a chance to upgrade their personnel.

In a tight labor market, low-end businesses have to take what they can get – often workers with bad attitudes and no ambition. But, as the supply of workers begins to greatly exceed the supply of jobs, these employers can be choosier, and they can replace their worst workers with people who have solid work histories and are desperate for work.

Now this employment shift can only happen after we’ve been in recession for a while – which we have, so the laid-off workers have given up hope of finding “good jobs” – and if the recession is expected to continue for quite some time. After all, replacing even a poor worker is costly, and oftentimes low-end employers don’t want to hire “overqualified” workers for fears that they’ll find more suitable employment after the employer has invested time and money in training them. That so many service-sector businesses are looking for “managers” does not bode well for the near future of the U.S. economy.

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